Surrender Value of An Insurance Policy

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Surrender Value of An Insurance Policy

Definition of 'Surrender Value':

It is the amount the policyholder will get from the life insurance company if he decides to exit the policy before maturity.

A mid-term surrender would result in the policyholder getting a sum of what has been allocated towards savings and the earnings thereon.

A regular premium policy acquires surrender value after the policyholder has paid the premiums continuously for three years. However, you need to make sure that you keep track of this policy until it matures. Once you decide to exit the insurance policy, all the benefits associated with it, including the protection cover, will cease to exist.

CASH VALUE:
Cash value, or account value, is equal to the sum of money that builds inside of a cash value-generating annuity or permanent life insurance policy. It is the money held in your account. Your insurance or annuity provider allocates some of the money you pay through premiums toward investments—such as a bond portfolio—and then credits your policy based on the performance of those investments.

a. Every policy offered by life insurer under a linked platform –

(i) Shall provide surrender value in accordance with the Insurance Regulatory and Development Authority (Linked Insurance Products) Regulations, 2013, as amended from time to time.
(ii) Shall comply with all the provisions related to surrender or discontinuance in accordance with the Insurance Regulatory and Development Authority (Linked Insurance Products) Regulations, 2013, as amended from time to time.

b. Every policy offered by life insurer under a non-linked platform-
(i) Shall provide surrender value in accordance with the Insurance Regulatory and Development Authority (Non-Linked Insurance Products) Regulations, 2013, as amended from time to time.
(ii) Shall comply with all the provisions related to surrender in accordance with the Insurance Regulatory and Development Authority (Non-Linked Insurance Products) Regulations, 2013, as amended from time to time

How to Surrender Value of Insurance is Calculated:
Surrender value is the amount payable to the policyholder should he decide to discontinue the policy and encash it. It is payable only after three full years' premiums have been paid to the insurance company.

If you decide to go in for another insurance policy at this stage, it will come at a much higher premium because your age will have advanced since taking the earlier policy. Therefore, retention of earlier policies and continuing all policies without allowing them to lapse is the best strategy.

Surrender values exist only in investment-cum-insurance policies like endowment plan, money back plan and unit-linked insurance plan (ULIP) since they originate from the investments of the insured. Some ULIPs can be surrendered after one year but the surrender value is payable only after three years as investments in ULIPs are locked-in for this period. Single premium policies can be surrendered after one year.

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